Iran: Herd Behavior Behind Stock Market Rout
EghtesadOnline: The sudden heavy losses in the Tehran Stock Exchange in recent days has bewildered analysts and market players alike who had initially dismissed the phenomenon as a natural correction that would run its course.
The market however, posted its fourth straight decline–and one of its biggest in recent history– on Sunday, with the benchmark TEDPIX index ending the day 4.16% lower, taking the market below the 180,000 level it had boasted days ago.
Head of the Securities and Exchange Organization, Shapour Mohammad offered his take on the reasons behind the market's rout, saying that crowd behavior, manifested in the irrational thinking of some investors carries the blame.
"During the past days, new people with varying degrees of investment and financial literacy entered the capital market whose main characteristic was irrational behavior in reaction to rumors and false news," Mohammadi said in an interview published on the Securities and Exchange news website, Financial Tribune reported.
"We should note that volatility in share prices is an inherent feature of the capital market and at a time when prices are down, we should avoid irrational acts, ignore rumors and enter the capital market with a long-term vision."
The dizzying ascent of stocks from late summer had encouraged many to flock to the stock market, as lofty valuations and the prospect of further slide in the value of the rial boosted investor sentiment. The flow of fresh liquidity by new investors became the main propellant of the trend and volatility in the parallel markets of currency and gold only intensified that momentum.
Only in the first nine days of the fall, the TEDPIX posted a return of 24% on investment. On September 30 when TEDPIX climbed 4.1%, some analysts warned that the frenzy for share-buying was no longer motivated by the desire to make profit as almost all shares were facing strong demand.
As for reasons about the market's growth, Mohammadi mentioned four reasons: interest rate cuts enforced by the central bank which increased the capital market's allure, global commodity price hikes, the surge in currency rates and listed companies becoming profitable.
In order to escape a worsening fate, the official suggested that investors create a basket of stocks in order to reduce their risk exposure and avail themselves the counsel of financial experts when making investment decisions.
TEDPIX Ends Monday Trade 0.70% Lower
Tehran Stock Exchange’s main index lost 1,233.92 points or 0.70% on Monday to end trading at 175,185.5.
About 3.25 billion shares valued at $84.55 million changed hands at TSE for the day.
Trading at TSE and Iran Fara Bourse starts on Saturday and ends on Wednesday.
Persian Gulf Transportation Co. was the biggest winner as its shares went up 7.31% to 9,295 rials per share.
Technotar Co. incurred the biggest loss among all TSE-listed companies and went down 9.73% to 3,555 rials per share.
Persian Gulf Petrochemical Industries Company was the biggest laggard behind the benchmark's fall, followed by Jam Petrochemical Company, and Telecommunication Company of Iran.
Mobarakeh Steel Co. gave the biggest boost to the benchmark index, followed by Golgohar Mining and Industrial Complex, and Mines and Metals Development Investment Company.
The Price Index lost 360.54 points to close at 51,201.1.
The First Market Index was up 143.02 points to post 132,298.
The Second Market Index declined by 7,509.78 points to reach 333,350.2.
The Industry Index went down by 715.95 points to register 158,648.1.
The Free Float Index was down 1,254.34 points to hit 188,480.84.
The TSE 30 went up 36.14 point to settle at 8,597.9 and the TSE 50 ended 28.87 points lower to finish at 7,550.5.
> IFX Down 1.99%
Iran Fara Bourse’s main index IFX lost 40.22 points or 1.99% to close Monday trade at 1,980.48.
About 1.08 billion securities valued at $31.27 million were traded at the over-the-counter exchange for the day.
Iran Cultural Heritage and Tourism Investment Group Company had the highest number of traded shares and trade value as 65.21 million of its shares worth $1.96 million were traded.
Novin Insurance, Teliseh Nemooneh Co., and Kish Parsian Electronic Commerce registered the highest value increase.
Iran Cultural Heritage and Tourism Investment Group Company, Iran & Shargh Leasing Company, and Saina Co. suffered the biggest decline.
Esfahan Steel Company, Hormozgan Steel Company, and Iran Cultural Heritage and Tourism Investment Group Company had the most negative impact on IFX.